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What Should I Do With My Startup Equity When Switching Jobs?

Startup team working together

Deciding what to do with your startup equity when switching jobs is a financial decision that needs to be well considered. It can have important implications for your finances today and into the future. The right course of action depends on the specifics of your equity agreement, the stage and health of the startup, your personal financial situation, and your long-term goals. In other words, the decision depends on factors that are unique to your situation.

Here are steps and considerations to help guide you:

 

  1. Understand Your Equity Agreement: Familiarize yourself with the specifics of your equity grant. Important details include:

    • Type of equity (e.g., stock options, restricted stock units)

    • Vesting schedule

    • Exercise window after leaving the company

    • Strike price (for stock options)

    • Any tax implications of exercising or selling
       

  2. Vesting Status:

    • Fully Vested: If all of your equity has vested, you typically have the option to buy(exercise) any stock options or sell any shares you own.

    • Partially Vested: If only a portion of your equity has vested, you can usually only act on that vested portion.

    • Cliff Vesting: If you are nearing a vesting cliff (a date at which a large portion of your equity vests), it might be worth considering the financial implications of staying until the cliff date.
       

  3. Exercise Window: Many stock option agreements allow for a limited window (often 90 days) after leaving a company to exercise vested options. If you do not exercise within this window, you can lose those options. Be aware of this window and set reminders.
     

  4. Evaluate the Startup's Prospects: Try to gauge the potential future value of the startup and how long it might take to realize this potential. Keep in mind that startup equity is a high-risk investment and can also lose its entire value.

    • Is the company likely to go public or be acquired?

    • What are the growth prospects and current financial health?

    • Are there any recent valuations or funding rounds that can help estimate the company's current worth?
       

  5. Tax Implications: Exercising options and selling equity can have significant tax consequences. Consider the difference between long-term and short-term capital gains tax. If you exercise Incentive Stock Options (ISOs), you may trigger the Alternative Minimum Tax (AMT). Consult with a tax professional to help inform your decision.
     

  6. Personal Financial Situation:

    • Liquidity Needs: Exercising stock options can require a significant cash outlay. How would you fund this investment?

    • Risk Tolerance: Holding onto startup equity can be risky. Consider how much of your net worth is tied to the startup and if that aligns with your risk tolerance.
       

  7. Future Plans with the Equity:

    • Hold: If you believe the startup has a bright future, you might choose to hold onto your equity in hopes of a higher future valuation.

    • Sell: If the company has a secondary market or if there is an opportunity to sell your equity (e.g., through company buybacks or a tender offer), you may be able to benefit from immediate liquidity.
       

  8. Consult Professionals: Before making any decisions, consult with a financial advisor, tax professional, and/or attorney familiar with startup equity. They can provide tailored advice based on your specific situation.

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Remember, startup equity can be highly volatile and unpredictable. It is essential to make decisions that align with your broader financial goals and needs. If you are unsure, seeking professional advice can be invaluable.

Ready to Take Charge of Your Financial Future?

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